Rates for Virginia's Prepaid Education Program will go up by 25 percent for the enrollment period beginning Feb. 1, 2003.
The increase follows a national trend in the cost of prepaid tuition plans.
The recent mid-year tuition surcharges announced by many state universities were a motivating factor in the rate hike, said Diana F. Cantor, executive director of the Virginia College Savings Plan.
"Schools set their pricing and we react to what they are doing," Cantor said. "Because this year we set our rates in the fall, we were able to factor in the mid-year increases."
After the rate increases, the flat-rate cost of prepaying a newborn's tuition and required fees to a four-year public in-state institution will increase from $16,372 this year to $20,464 in 2003, said Mary Ellis Seemeyer, director of public information for the Virginia College Savings Plan.
If individuals choose to pay for the program on a monthly basis, the total cost will increase from $30,100 to $37,265, or spread out over 18 years, from $140 to $175 per month.
Once an individual enrolls in the program he or she is locked into the current rate -- his or her total tuition cost will not be subject to additional rate increases.
Since last year, the average cost of tuition and fees for four-year public institutions increased by 9.6 percent from $3,725 to $4,081 said Jennifer Topiel, associate director of public affairs for the College Board.
Although the increases are influenced by reduced state spending on higher education, the Virginia Prepaid Education Program receives no state money, Cantor said.
"Prepaid tuition is a creature of state government," she said. "The state takes on all the risk, but we have nothing to do with the state budget."
Cantor said that despite poor market performance, the program was prepared for years like this one.
"This was not unanticipated. We expected this to happen," she said. "As a result, we are still in really good financial shape."
The Virginia Prepaid Education Program started six years ago as a way to combat increasing tuition rates. Accounts can be established for children from birth until the ninth grade, guaranteeing the payment of tuition and required fees to any public in-state institution. Formulas are used to calculate the rate of return if students decide to study out-of-state or at a private institution.
The Virginia College Savings Plan is the state agency in charge of administering tax-advantaged Qualified Tuition Programs, also known as 529 plans. In addition to the Prepaid Education Program, the state also offers college savings plans through the Virginia Education Savings Trust and CollegeAmerica. Only the prepaid plan was affected by the increase.
Despite the up-front cost, prepaid tuition still is a smart investment, Cantor said.
"A few years ago people thought you could do so much better in the stock market, but recently that hasn't been the case," she said, adding that the recent economic downturn is helping to prompt more people to join the program.
"Enrollment this year was the highest since the program opened," Seemeyer said.
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